This week the Treasury delivered its PREFU, the pre-election financial update. It made for interesting and optimistic reading.28 October 2011

Max Bowden’s BusinessSense: Christchurch’s Bounce – It Won’t Happen In The Next Two Years.
This week the Treasury delivered its PREFU, the pre-election financial update. It made for interesting and optimistic reading.

On the worrying side however, it still sees the rebuilding of earthquake hit Christchurch as the crutch which will carry the country’s economic growth forward over the next few years.

The problem is not in the analysis of the growth potential to be realised by the rebuild, but the timing of it. The Budget factored in a rebuild starting late this year. The PREFU factors in a rebuild starting in the middle of next year. The reality is the rebuild will take a lot longer to get going.

The problem is competing factions, continued seismic activity, and no certainty a rebuild can actually take place at all. The central city has not been fully surveyed by geotechnicians, but already we have learned much of the soil is not great for building on.

There is also the problem of various agencies – EQC, EQR, CERA, and private entities – Fletcher, and city business owners and developers, treading on each other’s toes as they jockey for position. And don’t mention the insurance problems.

Added to this is the fact the Royal Commission investigating the earthquake will still be hearing evidence until March 2012 and won’t report back to the Government until several months later.

The media have “gone off” Christchurch as a story, but in truth it is the only story for NZ at the moment. If the Christchurch rebuild can’t be kick-started, there will be no economic recovery, no matter what happens elsewhere.

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The opening days of the Royal Commission of Inquiry into building collapses in Christchurch have been overshadowed in the news media by Rena and rugby, but there are some unsettling signs. First, the October 9 aftershock in Christchurch has clearly rattled the reinsurance industry.

It didn’t get such spin at the time, but within days of the 5.5 magnitude shake Fletcher Building pushed out a substantial earnings downgrade. It was partly driven by the Aust recession, but the Christchurch rebuild start date has also just pushed out.

Second, there is the commission’s own report. We read the report as saying the jury is well and truly out on the wisdom of building on gravelly alluvial plains such as Canterbury at all.

Not that the Commissioners put it that way. Rather, they say there will have to be careful geotechnical and design decisions for every building before deciding whether it can be built safely enough to live or work in.

However, there is a far starker Plan B option, which the Commission describes simply as “avoiding locations with difficult soil conditions.” Our layperson’s reading of the report is most of Canterbury, let alone what we think of as CBD Christchurch, is on alluvial soils.

On top of this, some of the most heavily hit parts of the city were around the Town Hall and conference complex on the northern fringe of the city. The concept plan, reflecting public feedback, includes rebuilding in parts of this area.

On top of this, and some unconvinced commercial property developers’ comments, are the skeptical views expressed on the third day of hearings by University of California professor Norman Abrahamson, who peer-reviewed GNS’s report to the commission and found quite a bit he disagreed with.

The adjunct professor of civil engineering at Berkeley found proposed building requirements for Christchurch “unrealistic,” compared with existing requirements in California, which is far richer than NZ, but also earthquake-prone because of its location on the San Andreas Fault. He told the commission “in the end, it all comes down to risk, and what is acceptable risk.

In the earthquake business we don’t do anything where we design for the worst case and give people zero risk. There will always be a risk.” Abrahamson worries about the potential for getting the balance wrong between safety and cost in any new building code requirements.

Reserve Bank Govenor Alan Bollard was saying something similar in his speech last week when he argued against an overly regulated response to the quakes and rebuilding.

Abrahamson also questioned the level of detail in the GNS document covering assumptions about what “acceptable risk values” were used to plan appropriate responses.

GNS’s chosen levels of aversion to risk of loss of life were high. “We are nowhere near those numbers in California. We’re at double the high end of that range.” Perhaps what Abrahamson is really saying is a lot of cities are built in places which aren’t seismically ideal, but life goes on.

Just ask a Wellingtonian, or a San Franciscan. Part of the Commission’s difficult task will be to draw the line of “acceptable risk,” a concept abhorrent to many people still recovering from the trauma of the quakes themselves.”

There are a multitude of issues to be worked through before the rebuild can be started and sustained. There are signs of new growth.

Fletcher building has begun the process of repairing the tens of thousands of homes damaged. People are putting new houses up where old ones have been demolished. New land is being made available for the rebuild.

What the whole process needs now is a bit more leadership to meld the competing factions into an unstoppable force to get the city, and thus NZ’s economy, moving again.

Contrast Christchurch’s rebuild response with the Japanese response to their quake and Tsunami. You might be forgiven for thinking such destruction never touched parts of Japan the clean-up has been so effective.

Yes, there has been a Rugby World Cup, and now there’s an election – but the Govt must make sure the Christchurch rebuild doesn’t founder.
Max Bowden
Publisher/Editor In Chief
The Main Report Group
ENDS